Godrej Consumer Products: Emerging-market play helps power company's show

The stock of Godrej Consumer Products' stock hitting a new high before the company announced its results for the quarter to March appear justified given the company's stellar performance.

The company posted a strong performance in both its domestic as well as international business. Its international business (predominantly in emerging markets in Asia, Africa and South America) fared well with the results vindicating the company's strategy of expanding outside India in emerging geographies and focusing on three product segments - household care, personal wash and hair care.

The international business recorded an organic growth of 27% in the March quarter versus 30% in the preceding quarter ended December. Its business from the Indian sub-continent was also strong - logging a 21% increase in sales and 24% growth in EBITDA. Margins have improved over the preceding quarters.

Category-wise, home care (household insecticides) and personal wash (soaps) registered a growth of 28% and 30%, respectively, higher than their category growths. The hair care category grew at a sequentially improved rate of 13%.

The company's net profit for the March quarter was boosted by realisations of Rs 25 crore from the sale of Brylcreem brand to Unilever Home & Personal Care International, BV. The Rs 685 crore raised from Temasek against a 4.5% equity stake has helped GCPL ease its debt burden. Its debt equity ratio is now down to 0.43 from 0.96 at the end of FY11.

The company is focusing on consolidating its increasing number of businesses across three different continents and also looking at opportunities of cross-pollinating its products. While there is the foreign currency risk to contend with, the company is expected to do well as it derives further synergies from its acquisitions.

This will also differentiate GCPL from other Indian FMCG companies. With over 40% of its revenues being derived from outside India, its dependence on India and consumers here is lower than most of its peers.

The company has logged stellar growth in its financials and is now better placed than others to take advantage of the consumption growth across most various emerging markets rather than just India.